In
Mitchell v. State Farm Mutual Automobile Ins. Co., [Ms. 2100184, Oct. 7, 2011] __ So. 3d __(Ala. Civ. App. 2011), the Alabama
Court of Civil Appeals held that a subrogated insurance carrier is responsible
for a pro rata share of the insured's attorney fees incurred in obtaining
a settlement payment against which the carrier has asserted a right of
reimbursement. In short, the "common fund" exception applies
to medical benefits paid by a subrogated insurance carrier. In December
2008, Plaintiff was involved in an automobile collision in which she sustained
injuries and property damage. Plaintiff hired counsel on a 1/3 contingency
fee. Plaintiff made an insurance claim to State Farm, her own insurer,
for property damage, rental-car coverage, and medical payments. State
Farm paid $5,000 in medical payments and $7,992.90 in other payments.
State Farm recouped the $7,992.50 from the at-fault driver's liability
carrier, but was informed that the medical payments coverage would not
be paid to State Farm pending the settlement of State Farm's insured's
bodily injury claim. State Farm put its insured's attorney on notice
that it intended to seek subrogation of its $5,000 medical payment. Plaintiff
filed suit in October 2009 against the at-fault driver. Plaintiff also
asserted claims for UIM benefits against State Farm as well as a tort
claim alleging a fraudulent, bad-faith refusal to pay an insurance claim
and conversion of funds stemming from State Farm's rejection of the
proposition that its subrogation interest was subject to a reduction under
the common-fund doctrine. The Plaintiff reached a settlement in the amount
of $35,000 with the at-fault driver and her liability insurance company.
State Farm requested full reimbursement of its $5,000 medical payment.
Plaintiff paid the disputed $5,000 into court pursuant to Rule 22 of the
Alabama Rules of Civil Procedure. Plaintiff and State Farm both filed
motions for partial summary judgment. The trial court ruled in State Farm's
favor, holding that State Farm took sufficient affirmative action on its
own behalf to avoid application of the common fund doctrine. The Alabama
Court of Civil appeals reversed, holding that the requirements of establishing
a common fund doctrine had been met and no exceptions applied. The Court
began by analyzing whether a common fund existed and concluded that it
did. First, the insured retained counsel to obtain compensation for the
damages she sustained in an automobile collision. Second, the insured's
counsel investigated the merits of the case, sent a demand letter, and
filed a civil action to recover damages. Third, the insured's counsel
obtained a $35,000 settlement. The Court held that it did not matter that
the at-fault liability insurer indicated its acceptance of its insured's
fault as early as January 9, 2009 because there was no indication in the
record that the liability carrier offered to pay anything before the Plaintiff
hired an attorney. Having determined that a common fund existed, the Court
next examined whether State Farm could avoid application of the common-fund
doctrine. Although the policy language preserved State Farm's subrogation
rights despite the "made whole" doctrine (i.e., no subrogation
rights unless the insured has been fully compensated unless contrary provisions
are agreed upon by the parties), the Court held that such language was
not sufficient to abrogate the common-fund doctrine. The Court held: "In
the absence of language in the State Farm policy demonstrating a clear
intent to negate the application of the common-fund doctrine to an insured's
recovery of damages from a third party, we are persuaded that the mere
presence of subrogation and reimbursement clauses in the State Farm policy
do not support the trial court's summary judgment in favor of State
Farm." Finally, the Court held "State Farm's insistence
that its separate extrajudicial dealings with [the at-fault driver's
liability carrier] to obtain reimbursement, and its declarations of its
intent to seek full reimbursement.

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